- FTC

FTC

The National Automobile Dealers Association (NADA) has challenged the Federal Trade Commission's (FTC’s) proposed rules on dealership advertising and finance and insurance.

NADA claims the disclosures are unsupported, sloppy and inconsistent in regulating the industry, while the FTC believes the proposals are solid, backed by research, studies and past enforcement actions.

The agency's justification for the rule changes is "woefully inadequate," Paul Metrey, NADA senior vice president of regulatory affairs told Automotive News. Regulation is meant to fill a hole in the law, but in this case, "it's things they can go after" already, he said.

The FTC maintains their research shows bait-and-switch tactics and junk fees in the industry. The FTC can target such tactics under the Truth in Lending Act and other prohibitions to unfair and deceptive practices.

But others say these concerns are unwarranted. For instance, NADA estimates 42 million new and used vehicles were sold to consumers in 2021, while Cox Automotive puts that number at 34.2 million. When compared to either sales tally, auto complaints add up to less than half a percent of all transactions.

The FTC also drew upon comments from qualitative research conducted in 2017 to draft the proposed rules.

But NADA reports this research does not contain statistically significant data found in quantitative research. The research involved interviews with just 38 borrowers who bought new or used vehicles in the Washington, D.C., area.

The FTC claims over 50 enforcement actions also justify the new rule. These actions targeted "matters involving misleading motor vehicle advertising, financing paperwork falsification, 'yo-yo' financing, deceptive and unfair add-on fees, discrimination, and privacy and data security issues,” according to the FTC.

But only three claims actually involved voluntary protection products which comprise the bulk of FTC's proposed rules.

The FTC also cited operations with other law enforcement agencies that produced 246 punitive actions. But these numbers are inflated, according to NADA.

NADA will examine the costs the proposed regulation would impose upon dealerships. The FTC puts this figure at $1.36 billion to $1.57 billion over a decade.

Andrew Koblenz, NADA executive vice president of legal and regulatory affairs, has criticized the FTC's estimate of the corresponding benefit to society over that time. The agency forecast $31.08 billion to $36.34 billion in gains from consumers needing three fewer hours to shop for a vehicle, with an hour valued at $22.20.

NADA has called the source of that three-hour calculation into question. 

NADA maintains the FTC hasn't studied the effectiveness of its proposed solutions. Previous examples of such research by the Federal Reserve Board and the FTC found disclosures confused consumers agencies sought to help.

NADA finds the rules also fail to capture the entire industry, suggesting they apply only to the franchised and independent dealerships over which the FTC has jurisdiction, not independent dealerships regulated by the Consumer Financial Protection Bureau (CFPB). This means the FTC made the new rules without conducting joint rule-making with the CFPB.

The FTC maintains enforcement and research supported its proposal.

NADA seeks to extend the public comment window, which opened Wednesday, July 13, to Sept. 12.

 

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